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After an unprecedented downturn in subscriber growth in the first quarter, Netflix executives are eyeing the millions of people using other subscribers’ accounts as a way to reverse the streaming service’s current trajectory.
Netflix NFLX, +3.18% executives said Tuesday that the service lost 200,000 paid subscribers on a net basis in the quarter, the first time the subscriber total has shrunk since Netflix had far fewer than 200,000 streaming subscribers in total, and they expect to lose 2 million subscribers in the current quarter. The unexpected decline slammed the company’s revenue growth projections and led to a nearly 25% plunge in Netflix’s shares in after-hours trading Tuesday.
But executives see an easy avenue to get up to 100 million new subscribers: Cutting off password sharing. In a letter to shareholders, executives estimated that many households are using the service without paying for it, by signing in under accounts of its 221.6 million paying subscribers, and that they hope to “reaccelerate” revenue growth “through improvements to our service and more effective monetization of multi-household sharing.”
Executives described cutting off password sharing as “a big opportunity” in the shareholder letter, because “these households are already watching Netflix and enjoying our service.”
Tests of how to cut off the ability to share passwords have already begun. In March, the company said it started two new paid-sharing features, where current members have the choice of paying for additional households, in three markets in Latin America. Executives did not offer any explanation in the letter on how they would verify accounts, but one tactic would likely be based on IP addresses and requiring users to log in with verification codes.
“While we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity,” the company said. “As we work to monetize sharing, growth in ARM (average revenue per membership), revenue and viewing will become more important indicators of our success than membership growth.”
Netflix recently increased its prices in the U.S. and Canada, its most mature markets, and executives said nearly a third of the password sharers — roughly 30 million — are in that region. Executives also said that long-term growth is going to come from markets outside the U.S., and that their goal is to sustain double-digit revenue growth.
MarketWatch has warned investors repeatedly that judging Netflix by subscriber growth was a fool’s errand as the service got larger and faced greater competition from well-funded competitors such as Apple Inc. AAPL, +1.41%, Walt Disney Co. DIS, +3.23%, Amazon.com Inc. AMZN, +3.49%, Warner Bros. Discovery WBD, +1.37%, Comcast Corp. CMCSA, +2.67% and Paramount Global PARA, +0.86%. But now that competition has eroded the revenue growth that Netflix had enjoyed for years, executives are going to have to make moves that will anger some consumers used to receiving the service for free.
Investors were waiting for more details from executives’ video interview with J.P. Morgan analyst Doug Anmuth. Check back for more after that interview airs.
Source: This post first appeared on http://marketwatch.com/